Don’t overlook this essential component of a commercial construction contract

Raise your hand if you’ve ever signed a terms and agreement without reading it first. Whether it’s for that new iPhone update or signing up for a gym membership, many of us are guilty of signing a contract without reading every clause. However, you don’t want to do this when reviewing a commercial construction contract.

If anything, you want to review a contract with a potential commercial contractor more thoroughly than usual. When reading, there’s one clause that often scares or confuses clients, but is a key indicator of a transparent, easy-to-work-with contractor. This guide outlines what that clause is and other elements to look for in a construction contract. 

Why You Should Review a Construction Contract

It’s normal to sometimes skim over parts of contracts, especially for smaller projects or updates to terms and conditions. But in construction, you never want to do this. The fact that the person you work with on a construction project (a contractor) has the word contract in his/her title should be an indicator that a contract is important. 

Let’s say you’re looking for a new contractor for a commercial renovation project. You interview three different candidates in your town and when they send over a proposal and estimate, you don’t read them or go with the least lengthy contract or lowest price. This could lead to a confusing project, unexpected fees, and confusion on how to communicate with your contractor.

In contrast, let’s say you read each thoroughly and choose the contractor with a detailed, thought-out contract. Your renovation runs smoothly, has minimal disruption on your business operations, and finishes on budget and on time. 

To experience the second scenario, you have to review the contract and look for crucial aspects.  Your contractor’s contract and estimate outline important details about your project, discuss the budget, and provide a projected timeline. 

AIA Contracts

Many contractors turn to the AIA contract because it is the premier option for working with architects, clients, and subcontractors. These contracts were prepared and are constantly revised by a committee of industry professionals including architects, attorneys, engineers, and contractors over 134 years. 

Given the long history and expert insight, they allow for optimal communication and faster projects. You can learn more about AIA contractors and why you should work with a contractor who uses them here

Essential Components 

Now that we’ve established the importance of a contract. What exactly should you look for in a construction contract? Essential information to locate includes: 

  • The projected timeline: when the different parts of the project should be completed and when to apply for any necessary permits
  • Change orders: an outline of what the process looks like to add or subtract parts to the project
  • Estimated fees: this estimate should include how any unforeseen expenses will be handled and be realistic for the scope of the project
  • Work included: a contractor should discuss in detail any work that you all have discussed so far, such as redoing drywall or creating an open-concept layout for your office
  • Punch list: how the project will wrap up and what the contractor and client will be responsible for when cleaning up the project
  • Legalities: the contractor’s license, the legal details of the property, and any other elements related to the legitimacy of the renovation and contractor
  • Right to stop the project: the process for stopping the engagement, should such a need arise
  • Submittals: your contract should outline how a contractor will deliver submittals, blueprints, and plans submitted to a client for approval before work commences

This isn’t an exhaustive list and a more comprehensive one can be found in this list provided by James Madison University. Depending on your project requirements, there may be additional clauses specific to your situation. 

What are General Conditions?

What comes to mind when you see a “general conditions” clause in a contractor’s proposal? 

You’re probably thinking the clause covers odds and ends that a contractor couldn’t fit in anywhere else. Often, general conditions is believed to be a catch-all for miscellaneous items, such as dumpsters, permits or insurance.

However, that’s not what this clause is. It’s not a section you want to glaze over. Instead of being a catch-all for miscellaneous items, the general conditions clause lays the groundwork for how a contractor will manage and supervise your project. When looking at the general conditions clause one part will tell you if the contractor has evaluated the best way to manage your project: the price. 

Pricing and General Conditions

In a general conditions clause, there should be cost estimates that take into account:

  • Supervision and Project Management personnel
  • Mobilization and demobilization
  • Communication
  • Administrative costs to complete a project
  • Site oversight
  • Other expenses that may or may not arise 

The estimated price for these services can vary greatly because not all contractors are the best at evaluating how long a project will take or allocating enough resources and personnel to manage the project. 

For example, one potential contractor for a large commercial build-out could budget $4,500 for managing the job while another estimates $70,000. 

At first glance, it’s appealing to go with the $4,500 estimate. However, a smaller management budget means:

  • The contractor will be on-site less
  • More subcontractors will be employed…and they’ll be running the job instead of your contractor
  • The project will take longer to complete
  • This means less revenue into the owner’s pocket

If your company loses $100,000 each month the build out continues, delays caused by a lower general conditions budget will cost you more than the $70,000 investment with the other contractor. 

The $4,500 budget will quickly become $4,500 AND hundreds of thousands of dollars in lost revenue instead of $70,000 upfront. 

General conditions and your future project

The general conditions line item should also outline how a contractor works. It may, for example, discuss how project managers supervise a project, how the contractor will communicate with the client, and how a contractor coordinates with subcontractors. 

The point of this clause is to get everything out in the open. It’s a sign of transparency about what the project will cost and other expenses that may occur while a contractor works on the project.

Plus, a realistic budget (which often seems higher than it should be) is a good sign that a contractor knows how to manage the budget, has allocated enough money and personnel to your project, and that they’ll find on-time and on budget. 

What General Conditions Isn’t

While the general conditions clause is confusing to read or overwhelming, it isn’t something to ignore or be concerned about. Instead, it’s a sign of a transparent contractor who finishes projects WITHOUT hidden fees or confusion on their process.

However, some companies can be scared away by the cost. After all, no one likes to see a list of contingency plans for if things go wrong or potential costs on top of what they’re already paying. 

When a contractor adds a detailed version of this clause to the contract, they aren’t going to cost more than other options, and they aren’t planning for things to go wrong. 

Instead, they are prepared and able to handle any obstacles that arise. Plus, they value being open and honest with clients and prospects, which is a good sign that they’ll be good communicators throughout the project. 

General Conditions in Virginia

If you live in Virginia Beach, Chesapeake, Hampton Roads, Newport News, Norfolk, Portsmouth, or Suffolk, it’s important to check for a transparent and detailed general conditions clause in a contract before agreeing to work with a specific commercial construction contractor.

When looking for a contractor, you also want to follow the guidelines outlined by the Virginia government

Along with a detailed general conditions clause, you also want to select a contractor who:

  • Is a licensed contractor in Virginia
  • Has great past project highlights
  • Is local and understands your city’s regulations
  • Finishes projects on time and on budget
  • Is easy to communicate with before starting the project

When considering different contractors in Virginia, consider Carlton Building Services. We specialize in commercial renovation projects, including build-outs, remodels, repairs, and maintenance, in Virginia Beach, Chesapeake, Hampton Roads, Newport News, Norfolk, Portsmouth, and Suffolk. 

JP Carlton

J.P. Carlton

J.P. Carlton is the founder of Carlton Building Services, a Hampton Roads-based construction company.